How to trade Forex

City Index offers three ways to trade Forex. Whilst similar, typically UK investors choose Spread Betting because any profits are free from UK Capital Gains Tax (CGT) and they also have access to other asset classes such as Indices and Shares. We recommend our spot Forex account only if you wish to trade on MT4 trading platform.

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How to trade Forex

Currencies always trade in pairs –one against the other. If one appreciates in value it does so at the expense of the other.

If you believe that a currency pair such as the British pound will rise against the US Dollar you can place a buy trade on GBP/USD. If the prices rises, you will make a profit for every point that GBP appreciates against the USD. If the market falls, then you will make a loss for every point the price moves against you. Our trading platform tells you in real-time how much profit or loss you are making.

You can also profit from a falling currency. If you think that GBP will fall in price, you place sell GBP/USD when you open the trade. Your position will stay open as long as you want it to, providing you have enough money in your account to cover the required margin.

With City Index you can trade global currencies as a spread bet or CFD, or as a margined FX product.

Forex trading explained

Foreign exchange (forex) or FX trading involves trading the prices of global currencies, and at City Index it is possible to trade on the prices of a huge range of global currencies. Currency trading allows you to speculate on the movement of one currency against another, and is traded in pairs, for example the Euro against the US Dollar (EUR/USD).

A market that doesn’t sleep

Currency markets are open 24 hours a day. There is no central exchange for trading Forex: instead prices are determined by interbank trading, the exchange of currencies between banks on a constant basis, all over the world.

The currency market is much bigger than share markets. The daily volume of global forex markets is estimated at over $4 trillion.

Currency pairs

Currencies are traded in pairs – this means you can only trade one currency against another. You can’t trade a currency in isolation. Each currency has its own three letter code, for example, the US Dollar is abbreviated to USD.

Most currency trading features one of the following as part of a pair:

US Dollar

USD

Euro

EUR

Japanese Yen

JPY

British Pound

GBP

Canadian Dollar

CAD

Australian Dollar

AUD

Swiss Franc

CHF

Taking a typical currency quote, here we have the USD/JPY pair. This shows how many units of the currency on the right, in this case the Yen, you can buy with the currency on the left, namely the US Dollar.

If traders are positive on the prospects for the Yen, they would expect the number on the right to go down – i.e. the Yen would be getting stronger against the Dollar. Traders would be buying less Yen with a Dollar as the Yen got stronger. Similarly, if the Yen was expected to weaken, forex traders would expect the Yen number to go up, reflecting the fact that the dollar could buy more yen.

Currency markets never decline in absolute terms – for one currency to go up, there will be others weakening against it. All currencies cannot go up at the same time. There is always going to be a loser.

Who trades currency markets?

Currency markets are important to a broad range of participants, from banks, brokers, hedge funds and investor traders who trade FX. Any company that operates or has customers overseas will need to trade currency. Central banks can also be active in currency markets, as they seek to keep the currency they are responsible for trading within a specific range.

What moves currency markets?

Central banksThese can have a big influence over the performance of currencies, for example by changing interest rates or printing more money. Central banks can also buy and sell their own currency in order to keep it trading within a certain level.

Political factorsIncreasingly, political uncertainty can drive currency markets. For example, the Swiss Franc has traditionally been seen as a safe haven currency. Something as banal as a speech by a finance minister can have a big impact on a currency.

Trading FX with City Index

When trading with City Index, you are not buying or selling actual currency – rather you are speculating on the price movement between FX pairs.

City Index offers prices on all the major currency pairs as well as many minor currencies.

Spreads start from 0.5pts on some major currency pairs.

You can trade FX with City Index either through Spread Betting, CFDs or FX on MT4.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Spread Betting, CFD Trading and Forex Trading are leveraged products. and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

* Spread Betting and CFD Trading are exempt from UK stamp duty. Spread betting is also exempt from UK Capital Gains Tax. However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 72% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.